Inflation likely picked up in June

PHILIPPINE headline inflation likely accelerated to 2.3 percent in June due to higher petroleum and food prices, analysts polled by TheManilaTimes said.

Projections for the month ranged from 2.1 to 3.0 percent with a 2.3-percent average, higher than the 2.1 percent posted in May but lower than the 2.7 percent recorded in June last year.

The Bangko Sentral ng Pilipinas (BSP) earlier projected inflation to settle at 1.9 to 2.7 percent.

The Philippine Statistics Authority

is set to release official June inflation data on July 7.

“Oil price for increases in June definitely caused a spike in June, which I think went up to about 3 percent in June from just about 2.1 percent in May,” said Asian Institute of Management economist Emmanuel Leyco.

The Department of Energy earlier reported that local oil companies raised the prices of petroleum products — P1.05 a liter for gasoline, P0.85 a liter for diesel and P0.30 a liter for kerosene.

ING Bank Manila senior economist Nicholas Antonio Mapa, for his part, said inflation likely hit 2.3 percent in June on the back of higher food prices.

“Food prices will be the main driver for the slight uptick in prices as select commodities tick higher on supply disruption owing to partial lockdown measures affecting production and distribution. Meanwhile, utility costs should be lower on an annual basis while transport experiences less pronounced deflation trend with crude oil prices bouncing in global markets and demand at the retail pump normalizing after the lockdown,” he said.

The Manila Electric Co.’s per kilowatt- hour ( kWh) rate for households consuming 200 kWh monthly eased by P0.1216 centavos in June.

Mapa said the low inflation environment and benign outlook will allow monetary authorities to keep lending rates floored to provide the fertile backdrop to aid in the recovery of the economy.

“Keeping rates subdued helps keep borrowing costs affordable and will definitely figure in the recovery. Threats of asset price inflation are minimal as of the moment with the economy hit hard by the pandemic,” he said.

The BSP reduced policy rates by a total of 175 basis points this year to bring overnight borrowing, lending and deposit rates to 2.25 percent, 1.75 percent and 2.75 percent, respectively.

Bankers’ projections

Analysts from Security Bank Corp. ( SBC) and Rizal Commercial Banking Corp. (RCBC) forecast inflation to hit 2.2 percent.

“Higher gasoline, diesel and kerosene prices were observed together with the food basket as more economic activities resume,” said SBC chief economist Robert Dan Roces in a report.

“Looser quarantine measures notwithstanding, consumption may likely be clustered around essential items for most of the second half, thus curtailing price pressures overall,” he added.

Roces said inflation will likely remain relatively benign until yearend and is projected to average 2.1 to 2.2 percent. He added that the scope for further policy rate cuts

may be limited in the meantime as the real interest rates with the real interest rates nearing zero.

RCBC chief economist Michael Ricafort, meanwhile, said the easing of quarantine restrictions and reopening of the economy could lead to some gradual pickup in business and economic activities, resulting in increased demand and spending activities.

“Global crude oil prices already corrected higher recently to near four-month highs or since early March 2020 levels even right before the pandemic in the country, as many economies around the world further restart their respective economies, thereby leading to some pickup in demand for oil even back to pre- Covid- 19 (coronavirus disease 2019) levels for countries such as China, which is the world’s second biggest economy; unlike during the height of the lockdown in April 2020 when global crude oil prices collapsed due to the sharp decline in demand amid the restrictions by authorities to prevent the Covid-19 from spreading,” said Ricafort.

He added that (unmilled rice) and rice prices also picked up during the month.

“Businesses, households and other institutions could start to increase their respective spending again as lockdowns have been further relaxed, thereby could fundamentally support some pick up in both demand and prices, but economic conditions could remain relatively slower in the coming months amid economic contractions and risks of recession still lurking locally and in many countries worldwide largely due to the Covid-19 lockdowns,” said Ricafort.

“Thus, the lowest for inflation, for now, may have already been seen already at the height of the lockdowns when there was a dramatic decline in production, sales and other economic activities that sharply reduced demand and prices of many goods and services,” Ricafort added.

Alvin Ang, economist from the Ateneo de Manila, meanwhile, projected June inflation to hit 2.1 percent on the back of generally stable food prices.

ANZ Research gave the lowest inflation forecast of 2.0 percent.

“The rebound in global crude oil prices should have lifted ‘transport’ costs and higher rice prices keeping overall ‘food’ costs above 2 percent y/y (year-on-year). Nonetheless, lower electricity and cooking gas prices are likely to have helped overall inflation come in a touch lower,” it said in a report.

ANZ Research said inflation continues to be a non-issue for monetary policy.